California Nat Bank v. Kennedy

Citation42 L.Ed. 198,17 S.Ct. 831,167 U.S. 362
Decision Date24 May 1897
Docket NumberNo. 206,206
PartiesCALIFORNIA NAT. BANK v. KENNEDY
CourtUnited States Supreme Court

This action was commenced in the superior court of the county of San Diego, state of California, against the California Savings Bank and other defendants, including the plaintiff in error. In each of five counts of an amended petition a separate cause of action was stated, seeking a judgment against the savings bank for the amount of a particular deposit of money alleged to have been made with it on a specified date; and a recovery was asked against the other defendants upon the ground that they were stockholders in the savings bank on the dates of the various deposits, and in consequence liable, under the laws of California, to pay the debts of the savings bank, in proportion to the amount of stock held and owned by each stockholder. A demurrer to the amended complaint was overruled, and the California National Bank answered, denying that it was ever the owner of any stock in the savings bank, and alleging that, if any such stock was ever issued to it, it was issued without due authority from the bank in its corporate capacity, and without authority of law. The answer also averred that the bank never acquired 'in the usual course of business, or now has, as owner, any stock with the said defendant the California Savings Bank.'

No issue was taken upon the truth of the averments in the amended complaint as to the amount and date of the respective deposits which plaintiff alleged he had made in the savings bank.

From the evidence it appeared that the savings bank began business in January, 1890. Its stock consisted of 2,500 shares, and was originally distributed in 5 certificates, each for 500 shares, 1 certificate being made in the name of each of the following persons: J. W. Collins, S. G. Havermale, D. D. Dare, William Collier, and H. F. Norcross. Norcross had no official connection with the national bank but Collier, Dare, and Collins were, respectively, president, vice president, and cashier of the national bank, and were also, with Havermale, directors of the bank during the period when the alleged transfers of stock were made to the bank.

The certificates in the names of Collier and Norcross were never delivered, and, when subsequently canceled, contained no indorsement. In the stead of those certificates, however, on September 10, 1890, 3 certificates, aggregating 990 shares, were issued in the name of J. W. Collins, cashier, and 2 certificates, each for 5 shares, were issued to Collier and Norcross, respectively. On January 2, 1891, the 3 certificates for 990 shares in the name of Collins, cashier, were surrendered, and a single certificate for that number of shares was issued in the name of the California National Bank.

In December, 1890, and January, 1891, 5 per cent. dividends were declared and paid on the stock of the savings bank. The amount of each dividend received by the California National Bank was $750. No direct evidence was introduced, accounting for these payments having been made on the basis of an ownership of 1,500 shares, when the bank was sought to be held liable for, and appeared to be the holder of, but 990 shares, put in its name as above stated. Both the savings bank and the national bank became insolvent; the former suspending November 12, 1891, while the receiver of the national bank qualified December 29, 1891.

The cause was tried by the court without a jury, and by findings of fact, and conclusions of law rested thereon, the court sustained the averments of the complaint; adjudged the national bank to be the holder of 990 shares of the stock of the savings bank, and responsible to the creditors of the savings bank in that proportion. Judgment was entered against the savings bank for $47,497.75, and against the national bank for $18,507.52; a payment to the savings bank, however, to be a satisfaction of the judgment against the national bank. Both at the hearing, by objection to the introduction in evidence of the certificate of stock, and in a statement filed with the motion for a new trial, the point was made that the issue of the stock to the bank was void because not shown to have been acquired pursuant to authority of its board of directors, and because the stock was not taken in the ordinary course of the business of the bank as security for the payment of a debt or otherwise. In addition, by the first, second, and third specifications of errors of law occurring at the trial, it was specially stated that error had been committed in admitting the certificate in evidence and holding the national bank liable, substantially the same language being employed in each specification,—because the national bank, a corporation under the banking laws of the United States, could 'not in law become a stockholder or incorporator in any other corporation.' The motion for a new trial was overruled, and an appeal was taken to the supreme court of the state, by which court the judgment was affirmed. 101 Cal. 495, 35 Pac. 1039. A writ of error was allowed, and the cause has been brought here for review.

Edward Winslow Paige, for plaintiff in error.

George Fuller, for defendant in error.

Mr. Justice WHITE, after stating the case, delivered the opinion of the court.

Before discussing the merits, we will briefly consider and dispose of a suggestion that no federal question appears by the record to have been properly raised below, and therefore there is a want of jurisdiction in this court to review the judgment. The answer averred that, if any stock of the savings bank appeared to have been issued to the national bank, it was 'issued without authority of this corporation defendant, and without authority of law.' In view of the fact that the defendant was a national bank, deriving its powers from the statutes of the United States, the averment that a particular transaction of the character of the one in question, if entered into, was without authority of law, can, in reason, be construed only to relate to the law controlling and governing the conduct of the corporation; that is, the law of the United States. But, if there were ambiguity on this subject, it is entirely removed by the grounds which were presented on the motion for a new trial, and the specifications of error which form the basis of the appeal which was taken to the supreme court of the state of California, for in both the motion and specifications the want of power under the laws of the United States was clearly asserted. The supreme court of the state interpreted the case brought to it from the court below as presenting the question of the power of the corporation, under the law of the United States, to become a stockholder in a savings bank, for in the opening sentence of its opinion it said:

'The Califoria National Bank, one of the defendants, has appealed upon the ground that, by virtue of the statutes under which it is organized, it had no power to become a stockholder in another corporation, and that its act in becoming such stockholder is so farultra vires that it cannot be made liable for any portion of the indebtedness of the corporation.'

The suggestion as to the want of jurisdiction is therefore without merit.

The federal questions which therefore arise on the record may be thus stated: (1) Do the statutes of the United States (Rev. St. § 5136 et seq.) relating to the organization and powers of national banks prohibit them from purchasing or subscribing to the stock of another corporation? And (2) if a national bank does not possess such power, can the want of authority be urged by the bank to defeat an attempt to enforce against it the liability of a stockholder?

As to the first question: It is settled that the United States statutes relative to national banks constitute the measure of the authority of such corporations, and that they cannot rightfully exercise any powers except those expressly granted, or which are incidental to carrying on the business for which they are established. Bank v. Townsend, 139 U. S. 67, 73, 11 Sup. Ct. 496. No express power to acquire the stock of another corporation is conferred upon a national bank, but it has been held that, as incidental to the power to loan money on personal security, a bank may, in the usual course of doing such business, accept stock of another corporation as collateral, and, by the enforcement of its rights as pledgee, it may become the owner of the collateral, and be subject to liability as other stockholders. Bank v. Case, 99 U. S. 628. So, also, a national bank may be conceded to possess the incidental power of accepting in good faith stock of another corporation as security...

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